Rationalise Dividend Distribution Tax Rate to 10%: CII

“Conducive taxation framework is a vital cog in the wheels of financial markets,” CII DG Chandrajit Banerjee said.

CII Director General Chandrajit Banerjee

(Photo Courtesy: Facebook/Chandrajit Banerjee)

The dividend distribution tax rate should be cut to 10 percent in order to encourage participation of different stakeholders in the country's financial markets, industry body CII said on Sunday, 14 January.

In its recommendations to the government on the forthcoming Union Budget, the Confederation of Indian Industry (CII) has also said that, alternatively, to negate the multiple level taxation issues regarding dividend distributed, the company paying dividend should pay tax on its profits, including distributed profits, at corporate rates.

Dividend should be taxed in the hands of the non-corporate (leveraged) shareholders as normal income, and expenses should be allowed against such dividend in full.

CII release

The chamber has also recommended "that Section 80M which granted deduction of inter-corporate dividend received by a domestic company to the extent of amount distributed by the recipient domestic company on or before the due date of filing return of income, should be reintroduced to preempt double taxation of inter-corporate dividend.

Conducive taxation framework is a vital cog in the wheels of the financial markets and has the potential to make or break the market.

CII Director General Chandrajit Banerjee in a statement

On the with-holding tax (WHT) provisions for foreign portfolio investors (FPI), CII has suggested that the reduced tax should be made perpetual, and not expire after June 2020, "to ensure tax certainty and higher participation from international investors".

Currently, WHT deduction at source on interest payments to FPIs stands at 5 percent on investments in rupee denominated domestic corporate bonds. It was reduced from 20 percent to 5 percent and has been made available till June 2020.

FPIs interest in participation in Indian economy is increasing due to the sound economic growth of the country and the bare minimum incentive they want is tax certainty in the long-term.

Statement

CII also recommended granting WHT exemption to FPIs to incentivise their participation in municipal bonds, saying this could help increase inflow of long-term money from pension funds.